An Experienced Accountant Provides a Forecast for the Construction Industry
Technology has evolved very quickly over the last couple of years. Can you tell us about some of the advances in technology, specifically within the construction industry?
Increasing changes in technology are significantly impacting the industry. Many construction companies are being forced to move from yesterday’s technology applications to more sophisticated and advanced software systems in order to stay competitive during these challenging times. In response to this, software companies are investing billions of dollars to improve their software offerings and stay ahead of rapid technology changes. The software within the construction industry is becoming better at streamlining workflows, automating routine tasks, and enabling executives and owners to make more informed decisions based on timely and reliable information. Some companies and federal contractors are even utilizing technology to track things such as daily employee wellness and vaccination status. These modern technology solutions and the option to work remotely are increasingly important to a new, younger workforce.
Staying on the theme of workforce, what impacts have you seen to the workforce within the construction sector?
There is a huge skilled labor shortage within the industry. Many veteran workers are now retiring, while the younger generation is typically pursuing higher education to work in other industries. The skilled labor workforce is expecting to see a 20% retirement rate over the next decade, while projections show a potential 10% growth in demand over the next five years. A recent survey showed that over 50% of contractors report difficulty in finding skilled labor to keep up with the expected demand. The contractors that have fared the best in hiring skilled workers are companies that invest in technology. These contractors are attracting a younger generation who is not only looking for more sophisticated technology with software integration, automated workflows, and cloud solutions, but also other tools like building information modeling (BIM), robotics, wearable devices, and drones. This, of course, means cost increases, as skilled labor costs and technology investment costs are increasing dramatically. Unfortunately, when it comes to making the necessary investment to attract the right talent, sometimes there is a lack of perceived value and buy-in from leadership, which can be a significant roadblock to change.
What have you been seeing recently in the area of material costs and supply chain in the industry?
There is a marked difference in the cost of steel and lumber. Back in May 2021, steel peaked at around $6,000 and lumber peaked at over $1,600. Although prices have come down a bit since then, with steel around $4,800 and lumber around $1,250, pre-COVID, steel was around $3,500 and lumber was around $350. Five-year lows for steel and lumber were around $2,200 and $265 respectively. There are many reasons for these drastic increases, among them is what has taken place in the residential sector. COVID-19 has caused a lot of people to move out of crowded urban areas to the suburbs. The residential migration, along with extremely low mortgage interest rates, is responsible for record numbers of new home construction and home renovation. This increased demand has driven up prices for all materials, especially for steel and lumber. Ironically, lumber yards had been predicting a slowdown due to COVID-19, causing them to reduce their activities. Lumber mills and production facilities are also often located in low population areas, making it difficult to find skilled workers and restart production. These factors have subsequently delayed the process of getting materials out to construction sites and hiked up the price for lumber.
How have contractors managed through all of these challenges, and what is the path forward?
Despite the pandemic and its subsequent challenges, most contractors have experienced a couple of profitable years. The Paycheck Protection Program helped contractors keep their employees and deal with inefficiencies caused by the pandemic, but contractors are now left with a market that does not have enough work. At the same time, the work being released is extremely competitive, with bidders driving prices down as many of the associated material and labor costs are increasing. This situation is forcing contractors to decide if they should take on work at lower profit margins and hope that nothing further decreases the margins during the job. Cost overruns and delays can create major issues at a time when contractors can least afford it, and they will need to monitor and manage projects on a daily basis to make sure they have the funds to finish them. This is where technology, like KPI (Key Performance Indicator) applications can be a game changer, as KPIs create an analytical basis for decision making and help contractors make meaningful corrections. The construction industry has historically been very resilient, and as we turn the corner on the pandemic and move into the new normal, we expect to see the construction industry do the same – it will evolve and come back even stronger.
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